2006 French budget plans for 2.25pc growth

PARIS, Sept 28 (AFP) - France presented on Wednesday a budget for 2006 based on economic growth of 2.25 percent, a budget deficit just within EU limits and an oil price of US $60.

PARIS, Sept 28 (AFP) - France presented on Wednesday a budget for 2006 based on economic growth of 2.25 percent, a budget deficit just within EU limits and an oil price of US $60.

But the public debt and the total amount of national output taken by taxes and charges would both rise.

Meanwhile, separate data showed that controversial reforms to slash huge overspending on health services, a central factor in the overall budget deficit, have so far failed.

Finance minister Thierry Breton said in a copy of a speech for the National Assembly that he stood by a growth target of 1.5-2.0 percent this year.

He said that "nearly all studies point towards a rebound of activity" and that "the economic situation in the second half of 2005 and for 2006 looks unquestionably better than during the last 12 months: the French economy has emerged from the slowdown.

"In 2006, despite the rise of the price of oil, I therefore expect growth of 2.0-2.5 percent. Of course, I am hoping that it will be more.

"My belief is based on the acceleration of the world, and above all European, economic situation, but also on the effects of our policy for growth," said Breton.

France faces elections in 2007 and centre-right president Jacques Chirac told the cabinet meeting that approved the budget: "The government has constructed its budget on a hypothesis for growth of 2.25 percent. It is a realistic objective and we shall do all we can to exceed it."

Chirac, noting that the world economy was expected to grow by 4.0 percent, said that he had told the government to prepare a budget "for employment, for buying power and to prepare for the future".

Details to emerge from the budget presentation showed that:

- The public deficit arising from central government, welfare and local authority budgets next year would be 2.9 percent of gross domestic product, just within the EU and eurozone ceiling of 3.0 percent of GDP, but more than the target of 2.7 percent given by the government only a few months ago.

- The economy would grow by 2.25 percent next year. Most analysts, however, expect growth to be about 1.8 percent.

- The budget is predicated on an oil price of US $60 a barrel.

- The public debt, of accumulated past deficits, will amount to 66.0 percent of GDP, from 65.8 percent in 2005.

- Taxes and other obligatory charges including welfare contributions will amount to 44.0 percent of GDP from 43.9 percent in 2005.

- The number of people employed by the state would fall by 5,318 next year to 2.339 million after a reduction of 7,392 people in 2005. France has a big public and quasi-public sector. Attempts to reduce these numbers are highly controversial and the government had hoped to make big reductions because large numbers of civil servants born just after World War II are now retiring.

In France, welfare budgets, covering such areas as healthcare, pensions and family support, are separate from, and far bigger, that the central government budget. The EU budget limits, laid down by the Maastricht Treaty which created the eurozone, cover all of these areas together.

This year France expects the public deficit to be 3.0 percent of output, exactly on the EU ceiling and the first time that it has not overshot since 2001.

Data for the welfare budgets, obtained by AFP before they were provided to the social security accounts commission on Wednesday and before they were to go before the government on October 12, showed that reforms to slash welfare deficits are not working.

The welfare budget is set to show a deficit this year of EUR 11.9bn, about in line with the record high deficit in 2004.

The biggest deficit in the accounts concerns the health budget which is expected to end 2005 with a shortfall of EUR 8.3bn.

In 2004 the government introduced significant and highly controversial reforms with the intention of cutting sharply into the overspending this year.

Chirac had hoped that reforms of the health budget would bring the account into balance in 2007, but this now seems optimistic.

The European commissioner for economic and monetary affairs, Joaquim Almunia, had warned on September 8 that France could struggle to keep its deficit below the ceiling of 3.0 percent of output required by EU rules.

On Wednesday, members of the Socialist opposition said that the budget was "wholly unrealistic", and that the government had consistently over-estimated growth and under-estimated the deficits.